NCPA - National Center for Policy Analysis

THE PROBLEM WITH THE "NO PROBLEM" CROWD

January 7, 2005

Some groups like the AARP claim that Social Security and Medicare do not need reform. The "no problem" crowd, however, is not facing financial reality, says the Wall Street Journal. Failure to reform both entitlement programs now means that we will have to raise taxes and cut benefits later.

Today, in terms of revenues taken in through taxes and benefits that are paid out, Social Security runs a small surplus (expected to become a deficit by 2018), while Medicare is already running a deficit. Taken together the nation's retirement programs are losing money and demographic changes ensure it will only get worse:

  • In 2004, the shortfall of the Medicare payroll tax was sufficient to wipe out the Social Security surplus, forcing the federal government to divert 3.6 percent of its personal and corporate tax revenues.
  • By 2030, when all the baby boomers have retired, the gap between Medicare and Social Security revenues and benefits will reach 52.7 percent of general federal revenues.
  • By 2070, when today's toddlers retire, Medicare and Social Security will eat up not just their dedicated payroll taxes but all other government revenue as well.

The Journal says this scenario will never be allowed to happen -- the real agenda of those who believe there is no problem with Medicare and Social Security is to keep spending the Social Security surplus on other things until 2018 and then simply raise taxes much higher.

Source: Editorial, "AARP's Tax Increase," Wall Street Journal, January 5, 2005.

For WSJ text (subscription required)

http://online.wsj.com/article/0,,SB110489281596517274-search,00.html

 

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